SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 15, 2001
Chinawe.com Inc.
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(Exact name of registrant as specified in its charter)
California 000-29169 95-462785
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
c/o Hartman & Craven LLP, 460 Park Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 753-7500
NEO MODERN ENTERTAINMENT CORP.
442 N. La Cienega Boulevard, Suite 206, West Hollywood, CA 90048
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(Former name or former address, if changed since last report.)
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report dated March 15,
2001 on Form 8-K as set forth in the pages attached hereto:
Item.7 Financial Statements and Exhibits.
(a) Financial statements of the business acquired.
Page
----
Independent Auditors' Report F-2
Financial Statements and Notes:
Consolidated Balance Sheets as of
December 31, 2000; F-3
Consolidated Statements of Operations for the
years ended December 31, 2000 and 1999; F-4
Consolidated Statements of Shareholders' Deficit
and Comprehensive Loss for the years
ended December 31, 2000 and 1999; F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 2000 and 1999; and F-6
Notes to Consolidated Financial Statements for the
years ended December 31, 2000 and 1999. F-7
(b) Proforma financial statements.
The Registrant believes that all required pro forma information has
been provided as the acquisition of Chinawe.com Inc. by NEO MODERN ENTERTAINMENT
CORP. constitutes the reverse acquisition of a public shell containing no assets
or liabilities. The historical financial statements for Chinawe.com Inc.
included in this filing constitute the pro forma financial statements of the
acquired company for the preceding year. The financial statements filed with the
Registrant's Form 10-QSB for the period ended March 31, 2001 constitute the pro
forma information for the three months ended March 31, 2001 and 2000, and as the
transaction was consummated prior to March 31, 2001, the March 31, 2001 balance
sheet contained in the Registrant's Form 10-QSB reflects the post-acquisition
status of the Registrant.
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CHINAWE.COM INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Page 1
[Horwath Gelfond Hochstadt Pangburn, P.C. Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
CHINAWE.COM INC.
We have audited the accompanying consolidated balance sheet of Chinawe.com Inc.
and subsidiaries as of December 31, 2000, and the related consolidated/combined
statements of operations, shareholders' deficit and comprehensive loss, and cash
flows for each of the years in the two-year period ended December 31, 2000.
These combined/consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated/combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated/combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
consolidated/combined financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated/combined financial statements referred to above
present fairly, in all material respects, the financial position of Chinawe.com
Inc. and subsidiaries as of December 31, 2000, and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 2000, in conformity with generally accepted accounting principles.
/s/ Horwath Gelfond Hochstadt Pangburn, P.C.
HORWATH GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
April 6 , 2001
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CHINAWE.COM INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000
(NOTE 2)
NOTE RMB US$
---------- --------
ASSETS
Current assets:
Cash and cash equivalents 966,821 116,794
Accounts receivable 36,642 4,426
Deposits 2,495,403 301,451
Other current assets 205,071 24,772
---------- --------
Total current assets 3,703,937 447,443
---------- --------
Property, plant and equipment 4 122,341 14,779
---------- --------
TOTAL ASSETS 3,826,278 462,222
========== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable 93,063 11,242
Accrued expenses and other 501,828 60,622
Customer deposits 1,579,303 190,783
Convertible loan 5 1,602,194 193,548
Advances from related parties 6 1,390,922 168,027
---------- --------
Total liabilities (all current) 5,167,310 624,222
---------- --------
Shareholders' deficit:
Common stock, US$0.001 par value,
authorized 75,000 shares; 10,000 shares
issued and outstanding 80 10
Capital in excess of par 722 90
Accumulated deficit (1,327,290) (160,343)
Accumulated other comprehensive
loss (14,544) (1,757)
---------- --------
Total shareholders' deficit (1,341,032) (162,000)
---------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT 3,826,278 462,222
========== ========
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(NOTE 2)
NOTE 2000 1999
--------------------- ----------
RMB US$ RMB
---------- -------- ----------
Membership fee income 1,819,927 219,851 496,429
Administrative and general
expenses (2,984,229) (360,501) (2,485,819)
---------- -------- ----------
Loss from operations (1,164,302) (140,650) (1,989,390)
Other income 112,714 13,616 3,307
---------- -------- ----------
Loss before income taxes (1,051,588) (127,034) (1,986,083)
Income taxes 7 - - -
---------- -------- ----------
Net loss (1,051,588) (127,034) (1,986,083)
========== ======== ==========
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND
COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(NOTE 2)
Capital Accumulated
in other Total
excess of Accumulated comprehensive shareholders'
Capital par deficit loss deficit
RMB RMB RMB RMB RMB
--------------- --------------- --------------- --------------- ---------------
Balances, January 1, 1999 100,107 (857,958) - (757,851)
Capital contributions 900,802 - - 900,802
Comprehensive loss:
Net loss for the year ended
December 31, 1999 - (1,986,083) - (1,986,083)
Currency translation adjustments - - 2,230 2,230
--------------- --------------- --------------- --------------- ---------------
Total comprehensive loss (1,983,853)
---------------
Balances, December 31, 1999 1,000,909 (2,844,041) 2,230 (1,840,902)
Capital adjustments resulting from
acquisition of predecessor companies (1,000,829) 2,568,339 (2,230) 1,565,280
Capital contribution - 722 - - 722
Comprehensive loss:
Net loss for the year ended
December 31, 2000 - (1,051,588) - (1,051,588)
Currency translation adjustments - - (14,544) (14,544)
--------------- --------------- --------------- --------------- ---------------
Total comprehensive loss (1,066,132)
----------------
Balances, December 31, 2000 80 722 (1,327,290) (14,544) (1,341,032))
=============== =============== =============== =============== ================
Balances, December 31, 2000, US$ 10 90 (160,343) (1,757) (162,000)
=============== =============== =============== =============== ===============
See notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(NOTE 2)
2000 1999
------------------------- ----------
RMB US$ RMB
---------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,051,588) (127,034) (1,986,083)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 19,893 2,403 95,997
Non-current asset adjustment on consolidation (Note 2) 44,558 5,382 -
Changes in operating assets and liabilities,
net of effects of acquisition:
Increase in accounts receivable (4,000) (483) (30,392)
Increase in other current assets (149,061) (18,007) (2,618)
Increase in deposits (2,495,403) (301,451) -
Increase in accounts payable 51,479 6,219 41,584
Increase in accrued expenses and other 186,977 22,587 213,171
Increase in customer deposits 1,037,959 125,388 347,510
---------- --------- ----------
NET CASH USED IN OPERATING ACTIVITIES (2,359,186) (284,996) (1,320,831)
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (142,238) (17,183) (71,032)
---------- --------- ----------
Net cash used in investing activities (142,238) (17,183) (71,032)
---------- --------- ----------
Cash flows from financing activities:
Increase in convertible loan 1,602,194 193,548 -
Increase in advances from related parties (Note 6) 5,435,660 656,640 1,505,232
Repayments to related parties (Note 6) (6,274,251) (757,943) -
Capital contributions - - 900,000
Issuance of common stock - - 801
Issuance of common stock by subsidiary 2,220,998 268,301 -
Cash paid to acquire subsidiaries (561,853) (67,873) -
---------- --------- ----------
Net cash provided by financing activities 2,422,748 292,673 2,406,033
---------- --------- ----------
Net increase (decrease) in cash and cash equivalents (78,676) (9,506) 1,014,170
Cash and cash equivalents, beginning 1,054,236 127,016 37,836
Effect of exchange rate on cash (8,739) (716) 2,230
---------- --------- ----------
Cash and cash equivalents, ending 966,821 116,794 1,054,236
========== ========= ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In March 2000, the company purchased all of the Capital Stock of WIT (HK) for
US$67,873 (RMB561,853). In conjunction with the acquisition, liabilities were
assumed as follows:
RMB US$
--- ---
Fair value of assets acquired 1,775,515 214,486
Cash paid for capital stock (561,853) (67,873)
--------- -------
Liabilities assumed 1,213,662 146,613
========= =======
See notes to the consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
1. BACKGROUND
Chinawe.com Inc. ("Chinawe" or "the Company") was incorporated in the
State of Delaware on June 27, 2000 with an authorized share capital of
75,000 shares of common stock with a par value of US$0.001 each. In
November 2000, 10,000 shares of common stock were issued which resulted
in net proceeds to the Company of US$100 (RMB802).
Officeway Technology Limited ("Officeway") was incorporated in the
British Virgin Islands on December 8, 1999 with an authorized share
capital of 50,000 shares of common stock with a par value of US$1.00
each. In December 1999, 100 shares of common stock were issued
resulting in net proceeds to the company of US$100 (RMB802).
On March 15, 2000, Officeway acquired 100% of the issued share capital
of Welcon Info-Tech Limited ("WIT(HK)") (Note 3) which was incorporated
in Hong Kong on June 6, 1997 with an authorized and issued share
capital of 100 shares of common stock with a par value of RMB1.06 each.
WIT(HK) is engaged in the provision of services to subscribers for the
production of website image and business to business e-marketplace for
small to medium business.
On March 20, 2000, WIT(HK) entered into an agreement with Guangzhou
Welcon Info-Tech Limited (the "PRC party") to set up a Sino-foreign
co-operative joint venture in Guangzhou of the People's Republic of
China (the "PRC") under the name Welcon Info-Tech Limited ("WIT(GZ)")
for a period of 10 years.
The PRC party was registered in Guangzhou in the PRC on March 23, 1998
and is controlled by a shareholder of the Company. It is principally
engaged in the provision of services to subscribers for the development
of computer software and networking, website design, technical
consulting and business to business e-marketplace for small to medium
business.
The total registered capital of WIT(GZ) is RMB1,056,412, which was
contributed by WIT(HK). The PRC party is to provide premises,
facilities and licensing agreements for an annual service fee of
RMB100,000. All profits or losses net of service fees from the
co-operative joint venture are to be allocated to WIT(HK).
On November 8, 2000, all the shareholders of Officeway contributed
their shares of Company stock to Chinawe, thereby making Officeway a
wholly owned subsidiary of the Company. On October 18, 2000, the
shareholders of the Company formed Gonet Associates Limited ("Gonet"),
a British Virgin Islands Corporation. On October 29, 2000, Gonet issued
all of its shares of stock to the shareholders of Chinawe in the same
ownership percentage, as they owned in Chinawe. The shareholders then
contributed all of their shares in Chinawe to Gonet as a capital
contribution, making Gonet the sole shareholder of Chinawe.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The accompanying financial statements present the financial
position of the Company, WIT (HK) and WIT (GZ) as of December
31, 2000, and the results of their operations and cash flows
for the years ended December 31, 2000 and 1999. Prior to March
15, 2000, the Company, WIT (HK), and WIT (GZ) combined,
represented the predecessor operations of the Company.
Subsequent to March 15, 2000, the accompanying financial
statements present the financial position, results of
operations and cash flows of the Company and its subsidiaries
WIT (HK) and WIT (GZ) on a consolidated basis. Shareholders'
deficit has been adjusted, effective March 15, 2000 to reflect
the shareholders' deficit of the Company on a consolidated
basis. Prior to that date, shareholders' deficit represents
the combined shareholders' deficit of the individual companies
which were parties to the acquisitions discussed in Note 3.
All inter-company accounts and transactions have been
eliminated in combination and consolidation.
(b) Cash and cash equivalents
Cash and cash equivalents include cash on hand and deposits
with banks with an original maturity of three months or less.
(c) Property, plant and equipment
Property, plant and equipment which consist of computer
equipment and leasehold improvement, are stated at cost less
accumulated depreciation.
Depreciation is calculated on a straight line basis to write
off the cost of each asset over its estimated useful life. The
annual rate used for computer equipment and leasehold
improvement is 30% and 50% respectively.
(d) Translation of foreign currencies
Monetary items denominated in foreign currencies are
translated into Renminbi at the rate of exchange in effect at
the balance sheet date. Non-monetary items denominated in
foreign currencies are translated into Renminbi at the
approximate rate of exchange in effect at the translation
date. Any revenue or expense resulting from a transaction made
in a foreign currency is translated into Renminbi at the
approximate rate of exchange in effect on the date of the
transaction. Foreign exchange gains or losses resulting from
the translation or settlement of a monetary item in a foreign
currency are included in the determination of net earnings.
Translation of amounts from RMB into US$ for the convenience
of the reader has been made at the Exchange Rate on December
31, 2000 and December 31, 1999 of US$1.00 = RMB8.2780 and
US$1.00 = RMB8.30 respectively. No representation is made that
the RMB amounts could have been, or could be, converted into
United States dollars at that rate on December 31, 2000 and
December 31, 1999 or at any other date.
-8-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Income taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled.
(f) Revenue recognition
Subscription and service income receivable from members is
recognized over the period of subscription and to the extent
of services rendered in accordance with the terms of
subscription and membership agreements.
(g) Use of estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in
the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(h) Comprehensive income
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income", on January 1, 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive
income, its components and accumulated balances in a full set
of general purpose financial statements. SFAS No. 130 defines
comprehensive income to include all changes in equity except
those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current
accounting standards as components of comprehensive income be
reported in a financial statements that is presented with the
same prominence as other financial statements. The Company's
only current component of comprehensive income are foreign
currency translation adjustments.
(i) Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" This statement, as amended, is effective
for fiscal years beginning after June 15, 2000. The Company
currently does not have any derivative instruments nor is it
engaged in hedging activities, thus the Company does not
believe implementation of SFAS No. 133 will have a material
impact on its financial statements presentation or
disclosures.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Recently issued accounting pronouncements (Cont'd)
In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. SAB No. 101, as
amended by SAB No. 101A and SAB 101B, is effective no later
than the fourth quarter of fiscal years beginning after
December 15, 1999. SAB No. 101 provides the staff's views in
applying general accepted accounting principles to selected
revenue recognition issues. Currently, the Company believes
that it complies with the accounting and disclosure described
in SAB No. 101; therefore, management believes that SAB No.
101 will not impact the Company's financial statements.
(j) Risk considerations
(i) As a majority of the Company's operations are
conducted in the PRC, the Company is subject to
special considerations and significant risks not
typically associated with investments in equity
securities of North American and Western European
companies. The Company's operations may be adversely
affected by significant political, economic and
social uncertainties in the PRC. Although the PRC
government has been pursuing economic reform policies
for the past several years, no assurance can be given
that the PRC government will continue to pursue such
policies or that such policies may not be
significantly altered, especially in the event of a
change in leadership, social or political disruption
or unforeseen circumstances affecting the PRC's
political, economic and social life. There is also no
guarantee that the PRC government's pursuit of
economic reforms will be consistent or effective.
(ii) The Company expects that substantially all of its
revenues will be denominated in RMB. A portion of
such revenues will need to be converted into other
currencies to meet foreign currency obligations such
as payment of any dividends declared. Both the
conversion of RMB into foreign currencies and the
remittance of foreign currencies abroad require PRC
government approval. No assurance can be given that
the operating subsidiaries within the Company will
continue to be able to convert sufficient amounts of
foreign currencies in the PRC's foreign exchange
markets in the future for payment of dividends.
3. ACQUISITION OF WIT(HK) AND WIT(GZ)
Effective March 15, 2000, the Company acquired the business of WIT (HK)
for US$67,873 (RMB561,853). On March 20, 2000, WIT(HK) acquired the
business of the PRC party by forming the joint venture, WIT(GZ). The
acquisitions were accounted for as purchases, and the results of
WIT(HK)'s and WIT(GZ)'s operations are included in the Company's 2000
consolidated statement of operations from date of acquisition. The
purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the date of
acquisition. The purchase price equalled the carrying values of the net
assets acquired.
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4. PROPERTY, PLANT AND EQUIPMENT
RMB US$
--------- -------
At cost,
Computer equipment 103,330 12,483
Leasehold improvement 38,904 4,699
--------- -------
142,234 17,182
Accumulated depreciation 19,893 2,403
--------- -------
122,341 14,779
========= =======
5. CONVERTIBLE LOAN
On August 26, 2000, the Company entered into an agreement with a third
party whereby the third party provided financial support to the Company
by way of a loan of HK$1,500,000 (RMB1,602,194) to support the
Company's proposed restructuring activity. The loan is convertible into
6.37% of the shares of the listed company upon completion of the
acquisition and restructuring. (Note 8) The convertible loan is
provided interest free and is unsecured.
6. RELATED PARTY TRANSACTIONS
The balances with related parties are as follows:
RMB US$
--------- -------
Advances from related parties:
Shareholders 1,362,237 164,562
PRC party 28,685 3,465
--------- -------
1,390,922 168,027
========= =======
All balances with related parties are unsecured, interest free and
payable on demand. During the years ended December 31, 2000 and 1999,
the Company received advances from related parties of RMB5,435,660 and
RMB1,505,232, respectively. In addition, during the years ended
December 31, 2000 and 1999, the Company repaid advances of RMB6,265,736
and RMB NIL, respectively.
During the year ended December 31, 2000, the Company advanced RMB8,515
to a related party. Such amount remained outstanding as at December 31,
2000.
The Company occupied office space in a building leased by an affiliate
of the Company. Rent expense for each of the years ended December 31,
2000 and 1999 was approximately RMB128,400.
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7. INCOME TAXES
It is management's intention to reinvest all the income attributable to
the Company earned by its operations outside the United States.
Accordingly, no U.S. corporate income taxes will be provided in these
financial statements.
The Company is subject to income taxes on an entity basis on income
arising in or derived from the tax jurisdiction in which each entity is
domiciled.
Under the current laws of the British Virgin Islands (the "BVI"),
dividends and capital gains arising from the Company's investments in
the BVI are not subject to income taxes and no withholding tax is
imposed on payments of dividends to the Company.
Companies that carry on business and derive income in Hong Kong are
subject to Hong Kong profits tax at 16%. Companies that carry on
business and derive income in the PRC are subject to national income
tax at 30% and local income tax at 3%.
No income taxes have been provided for WIT(HK) as it incurred tax
losses during 2000 and 1999. Losses of WIT(HK) can be carried forward
to offset future taxable income for an indefinite period. No income
taxes have been provided for WIT(GZ) as it began operating in March
2000. No income taxes have been provided for WIT(GZ) as it has incurred
losses since it began operating in March 2000. Losses of WIT(GZ) can be
carried forward to offset future taxable income (if any) for a period
of five years.
The reconciliation between the effective tax rate and the statutory
U.S. federal income tax rate is as follows:
2000 1999
---- ----
% of Pre-tax % of Pre-tax
income income
U.S. federal income tax rate 34 34
Operating losses (34) (34)
------------ ------------
- -
============ ============
At December 31, 2000, the Company's deferred tax assets are as follows:
RMB US$
Hong Kong operating loss carry forward 254,647 30,762
PRC operating loss carry forward 162,401 19,618
Deferred tax assets valuation allowance (417,048) (50,380)
------------ ------------
Net deferred tax assets - -
============ ============
Management has provided a full allowance for deferred tax assets as
realization of the assets is not assured.
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8. SUBSEQUENT EVENT
On March 15, 2001, the Company completed a merger with Neo Modern
Entertainment Corp., a publicly held company ("Neo Modern"), pursuant
to an Agreement and Plan of Merger dated October 17, 2000 (the "Merger
Agreement"). In conjunction with the terms of the Merger Agreement, Neo
Modern changed its name to Chinawe.com Inc. and each outstanding share
of Chinawe common stock was converted into 2,876.4565 shares of the Neo
Modern common stock. This transaction has been recorded as an
acquisition of Neo Modern by Chinawe and a recapitalization of Chinawe.
Had the merger been completed on January 1, 2000, the Company would
have had average common shares outstanding for the year ended December
31, 2000 of 28,764,565, and net loss per common share for 2000 would
have been RMB.04 and less than $.01 per share.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHINAWE.COM INC.
Date: May 24, 2001 By:/s/ Man Ying Ken Wai
--------------------
Man Ying Ken Wai
Vice President
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